I. IntroductionDavid Ricardo is one of the known people who gave life and diversity in the world of economics today. He is one of some important figures who contribute in economic theories that make big changes in upgrading and improving the routines and works in economics. Some of his works published are, “The High Price of Bullion, A proof of the Depreciation of Bank Notes”, “Essay on the Influence of a Low Price of Corn on the Profits of Stock”, and the “Principles of Political Economy and Taxation” (Sraffa, p.11).
Ricardo is the one who formulated the “Classical System of Political Economy”, which brings a larger pool of knowledge in improving the system of economy. His thoughts and works dominated the economic industry throughout the 19th century.David Ricardo maintained and formulated that the economy’s system moves towards a standstill. His hypothesis and analysis are rooted in a modified version of the Labor Theory of Value. He first gained notice among economists over the bullion controversy when he wrote that England’s inflation was the result of the Bank of England’s propensity to issue bank notes in the year 1809. He believes in the principles of monetarism or the theory of money.
(Blackwood, 18) David Ricardo state that the economy generally moves toward a standstill. His differential analysis is rooted in a modified and advanced version of the labor theory of value. He believed that the rate of profit if society as a whole depends on the amount of labor necessary to support the workers who farmed the most cultivated land that can still maintain its agricultural model.II. David Ricardo, Brief BiographyDavid Ricardo, a British economist was born on April 19, 1772 in London. He was the third son of a Dutch Jew who made life on the London Stock Exchange.
When Ricardo was 14 years old, he joined his father’s business that opens the world of economic industry in his life. He showed great talent and good managing skills in economic affairs during those times. He also entered a brief schooling in Holland about stockbroker before his father employed him full-time at the London Stock Exchange. At the age of 21, he married a Quaker that make him broke with his family and his faith in Jewish orthodox. In this year he started to open up and managed his own business as a dealer in Government securities that make him rich in just a short period of time.
He continues his work up to the age of 41. In the year 1814, he find himself at the top of his life “sufficiently rich to satisfy all my desires and the reasonable desires of all those about me” (Letter to Mill, 1815) and this is when he retired from his business and become a country gentleman and bought the estate of Gatcomb Park. During those times of his life, Ricardo read Adam Smith’s Wealth of nations and studied economics on the next ten years. His first work was published in 1810, and it was entitled as The High Price of Bullion, a Proof of the Depreciation of Bank Notes, it was an extension of his letters that Ricardo had published in the Morning chronicle in 1809.
By this, he shows and share his knowledge to other people in the industry, he even debate in favor of a metallic currency, giving a fresh stimulus to a big controversy about the policy of the Bank of England.The French Wars came to picture in those times that caused Pitt’s government to suspend cash payments by the Bank of England in 1797 that makes an increase in the amount of their paper currency and the volume of lending. This builds a climate of inflation. He then said that it was affecting the foreign exchange rates and the flow of gold in the industry.
In 1819, the Bullion Committee was appointed by the House of Commons and Ricardo confirmed his different points of views and recommendation about the repeal of the Bank Restriction Act. (Bloy, Article 20) David Ricardo become friends with some prominent people, some of them were the philosopher and economist James Mill, the Utilitarian philosopher Jeremy Bentham and Thomas Malthus, who was best known for his pamphlet called Principles of Population published in 1798.Another controversy has aroused over the Corn Laws, when the government passed new legislation that was intended to raise the duties on imported wheat. In this situation, Ricardo made a move by responding in this controversy by publishing his Essay on the Influence of a Low Price of Corn on the Profits of Stock, in which he stated and argued that raising the duties on imported grain had the effect of increasing the price of corn and increasing the income of landowners and the aristocracy at the expense of the working classes and the rising industrial class (Bloy, Article 20).This helps distribute the national income towards the more productive groups in society.
However, in 1817, Ricardo published his work entitled “Principles of Political Economy and taxation” in which he analyzes the distribution of money among the landlords of the society, workers, and the owners of capital. He also stated that the domestic values of commodities were dominated by the quantities of labor required in their production rent, being eliminated from the costs of production. He concluded that profits are inversely proportional with the wages, which move with the cost of necessaries, and the rent tends to increase as population grows, rising as the costs of cultivation rise. (Victorian Web, Economics) Ricardo retires from Parliament in the year 1823 and he died on September 11 at the Gatcombe Park at the age of 51 due to Illness.III. Contributions of David RicardoAfter reading Adam Smith’s The Wealth of Nations, Ricardo entered the world of economy that makes him known around the world contributing a wide knowledge and principles he formulated during his time and during those controversy in economic industry. At the age of 37, he wrote his first economics article and spent out his fourteen years as a professional economist. His contribution starts to rise during the “bullion controversy”, where he argued about England’s Inflation and explained the quantity theory of money or what you called as monetarism.Another contribution of Ricardo’s knowledge in the world of economy is his law called the Diminishing Returns.
He comprehensively discussed this subject matter in his “Essay on the Influenced of a Low Price of Corn on the Profits of Stock”. This law becomes one of the famous in economic industry. The law states that as more and more resources are combined in production with a fixed resource, the additions to output will be diminish. Ricardo shows great talent as a professional economist when he opposed the Corn Laws, which restricted imports of wheat. He formulated and analyzed the idea of comparative costs, which is now called “comparative advantage”, which is the main basis for most economists’ belief in free trade today. The idea states that a country that trades for products that it can get a lower cost from another country is better off that if it had made the products at home (Sraffa, 73).
For example, a poor country can only produce one loaf of bread within ten hours of labor and one bottle of wine within five hours. However, a rich country is more productive. They can produce a loaf of bread with just one hour of labor and a bottle of wine with just three hours of labor. It may shows at first that because a rich country requires fewer labor hours to produce goods, but it really has nothing to do or gain from the trade process.
By analyzing this situation, we can see that the rich country and the poor country have a comparative advantage in producing goods. Poor country cost of producing wine, although higher than the rich country in terms of hours of labor, is lower in terms of breads. For every bottle of wine produced, a poor country gives up half of a loaf, while the rich country has to give up three loaves to make a bottle of wine.This shows that both sides are just equal when talking about comparative advantages in the trade industry. All of Ricardo’s works and contributions have not been built without using mathematical tools.
“The modern economist reading Ricardo’s principles feels rather as a member of one of the Mount Everest expeditions would feel if, arriving at the top of the mountain, he encountered a hiker clad in T-shirt and tennis shoes” (Friedman, David;1990) He believe that the estimated rate of profit for the whole society depends on the amount of labor necessary to support the needs of the workers who makes living from farms and land works. During those historical events that occurred that time in his life about the economy, David contributes a big help to all the laborers that encountered problems because of some designated controversy.The most fertile land naturally produces more food than the land which has a poorer quality. As a result of this, the demand is increasing in its rent. The poorest land utilized for agricultural utilities with all of its profit going to cover labor and the capital. That is why the biggest difference between the output from the least fertile land which can still be farmed and the higher quality constitutes the source of rent on the better land.
Constantly, as the population is increasing, poorer land must cultivate in order to meet the increasing demand. That’s why the rent for the higher quality land is also increasing. This is the fact that the poorer land necessitates increased labor to maintain its minimal output results in their decreasing profit. As rent increases, the profit is decreasing.
The two are inversely proportional when talking about these cases. The profits lead to reinvestment and this cause the increasing cost indirectly prevent the progress of the economic industry. This is when David Ricardo proposes his model. The interests of landowners directly oppose those of general society.
He devised Karl Marx in describing adversarial class relationships. Although the fact that Marx identified capitalists, not landlords, as the source of its society grief he have done. David Ricardo have supported Marx’s revolutionary brand of political economics, but the ties between the schools of thought are still undeniable and unexplainable. All in all Ricardo marked a helpful knowledge he left to all in the economic industry, he shows and share his understanding about the different principles in our economy.IV.
Historical Events During that span of David Ricardo’s life, some big historical events and controversy has occurred that open up a great opportunity to Ricardo’s talent in economic knowledge that make him show to the world his intelligent in economic studies. These are the Bullionist Controversy, and the controversy on the Corn Law. The Bullionist Controversy happened on the year 1809. This controversy begins when the French Wars (1792-1815) begin that caused Pitt’s government to suspend cash payments by the Bank of England in 1797. There had been an increase in the amount of their paper currency and the volume of lending.This created a climate of inflation.
The Bullion committee was appointed by the House of Commons in 1819. Back to where it starts, Ricardo wrote his first pamphlet named, “The High Price of Bullion, a Proof of the Depreciation of Bank Notes, it was an extension of the letters that Ricardo had published in the Morning Chronicle in the year 1809. This is where he argued about the controversy, he favored the metallic currency, giving a fresh stimulus to the controversy about the policy of the Bank of England. Ricardo was a partisan of the Bullionist position, which is going against the resumption of the convertibility of paper money into gold. Ricardo’s attempt becomes known as the “Classical Approach” to the theory of money.
There was a slight exception: banknotes often had a clause that allowed the bank to suspend convertibility. Although banks were legally required to pay the bearer in gold bullion, they could temporarily suspend that conversion should they find that necessary. The suspension clause in Scottish banks was the way that system responded to clearing house "bullying" trick - whereby several banks would surreptitiously hold back notes issued by bank Z and then, one day, they would all collectively unload the notes upon bank Z and demand redemption. Naturally, as it was a fractional reserve banking system, bank Z would not be able to redeem them all. If convertibility was required by law, then bank Z would have to declare bankruptcy.This sort of ruination by a clearing house cartel against a loner bank was not uncommon in Europe and North America.
Thus, Scottish law allowed for a temporary suspension of convertibility. This clause, however, was banned in 1765 and henceforth Scottish banks were required to pay the full amount on demand. The Bullionist argument was still evicted. If the banks are not required to convert notes into gold, then they will be tempted to issue notes in excess of the gold in their vaults. This case lead to an increase in supply of money, a cheapening of the price of money in inflation.They debate that to avoid inflation, required convertibility of notes into gold should be restored.
Among the spokesmen in this debate was David Ricardo together with Henry Thornton and John Wheatley). Next is the Corn Law. It was first introduced in Britain in 1814, when the landowners sought to protect their profits by imposing a duty on import corn. It is impossible that time of Napoleonic Wars to import corn from Europe. This led to an expansion of British wheat farming and to high bread prices. In 1816, a dreadful harvest occurred.
This crisis caused bread prices to increase rapidly which was followed by industrial unrest as workers demanded higher wages in order to pay for the increased food prices.There were also food riots all over the country. This controversy gave an important political impact on Manchester. This is the reason why the group in the middle-class moderate reformers began meeting at the home of John Potter. It was also influenced by the working class which is called radicals and the Corn Law was one of the main issues in the meeting conducted at St.
Peter’s Field on the 16th of August, 1819. The different manufacturers had opposed the corn bill, because they firmly believed that the increasing demands on the price of food would raise the wages of labor, and thus prevent their competition with the manufacturers of other countries. In 1828 the Corn Laws were revised by the Duke of Wellington's government.A sliding scale was introduced which allowed foreign corn to be imported duty-free when the domestic price rose to 73/- per quarter. The more the price of domestic grain fell below that figure, the higher the duty became. The sliding scale still did not really help the poor or the manufacturers In 1832 Reform Act gave the vote to a sizeable proportion of the industrial middle classes.
This piece of legislation meant that the manufacturers now had more importance in the governance of Britain and some notice had to be taken of their opinions. The Whig government seemed to have little idea about economics although in 1840 it set up a Parliamentary Select Committee to investigate the actions of import duties. The Anti-Corn Law Association was set up in London in 1836 but had little success there; it was re-formed in 1838 in Manchester and in 1839 was re-named the Anti-Corn-Law League (ACLL).The members of this movement were mainly middle-class manufacturers, merchants, bankers and traders. They wanted the Corn Laws to be repealed so that they could sell more goods both in Britain and overseas. The keystone of the protectionist system was thought to be the Corn Laws: once they were repealed, the ACLL thought that free trade would follow.
The ACLL headed a nation-wide campaign for the repeal of the Corn Laws which ended in success in 1846 when the Prime Minister, Sir Robert Peel repealed the legislation. These are trade barriers kept food prices artificially against the Corn Laws as well as other government interventions. He believed that the Corn Laws, in particular, constituted a burden to the agricultural economy.David Ricardo actively campaigned against this Corn Laws as well as other things that the government has implemented during the parliament. This economic picture event mirrors the teachings of Adam Smiths, which is the market, although imperfect is best left untouched. The government act only prevents the economy from righting itself.
Although David Ricardo did not share Smith’s confidence in the market he recognized that tampering with the system would only result in further economic stagnation.
